Loan-To-Deposit Ratio - LTD

The loan-to-deposit ratio (LTD ratio) takes a bank’s loans and divides it by its deposits. From bankers to borrowers, everyone should kind of care about their bank’s LTD ratio.

If a bank’s LTD ratio is too high, it means they're risking not having enough money on hand to cover any liabilities and cover all their costs. It’s good for banks to have a cash cushion and not spread themselves too thin by loaning out too much money at a given time.

If LTD ratio is too low, the bank will be worrying about their lost opportunity cost: the opportunity to make more money by loaning it out. While they’re sitting on cash, it’s not making money...it’s just lying there. But if they loan it out, it brings in the big bucks.